Your IndustryMay 20 2014

Movement to restricted advice a ‘cause for concern’

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A “direction of travel” that has seen a slow but steady movement away from independent financial advice towards restricted models has been cited as a potential “cause for concern” for referring professionals in other sectors by a senior figure at the UK’s largest accountancy body.

John Gaskell, manager of financial planning within the financial services faculty at the Institute for Chartered Accountants in England and Wales, said this stemmed from the fact that under the new rules there are “many more shades of grey under one label, restricted”.

He said: “It will be a cause of concern that the direction of travel is away from independent... which is part of a broader argument over the advice gap.”

Mr Gaskell’s comments come the day after FTAdviser revealed a major IFA firm with 26 advisers and more than £400m in assets could eventually abandon independence as part of the roll out of a national restricted advice network targeting low-value consumers.

Tavistock Investments bought County Life and Pensions, owner of independent wealth manager Sterling McCall, to be the “cornerstone” of a network of “several hundred” self-employed advisers that may ultimately go entirely restricted.

A number of major nationals and networks, including notably Sesame at the turn of the year, have moved restricted since January last year, though the trend has not yet translated to smaller firms.

FTAdviser data covering some 10,000 advisers reveals that there is a gradual movement away from independence, with the proportion of advisers describing themselves as such falling three percentage points in early 2014 but still standing at 76 per cent.

Mr Gaskell explained that the body’s “principles-based guidelines” for its roughly 125,000 UK-based members state that they must refer to “independent with a small I” - that is to say “non-conflicted” - firms that can give advice on the “majority of the relevant market”.

Referrals to independent advisers under the Retail Distribution Review definitions were likely to be viewed as safer, he said, because the requirement to be free of provider ties as well as advise on every part of a market by definition meets its criteria.

It follows that referrals were “potentially more problematic” where they were to restricted advisers, which encompassed not just the previous tied and multi-tied intermediaries accountants have long been prohibited from referring to, but also many ‘whole of market’ firms.

He said: “It could be argued that the level of knowledge - and of due diligence required - is greater for referrals to restricted advisers.”

Mr Gaskell also cited concerns over the wording of fresh Financial Conduct Authority guidance in the appendix of its recent independence paper, which contrary to previous guidance cited the need to advise on all areas of market as applying at adviser, rather than firm, level.

FTAdviser previously reported comments from solicitor Peter Hamilton of London-based law firm 4 Pump Court, who said the wording was at odds with existing Cobs rules and would mean all advisers would need to be expert in all areas for any firm to remain independent.

Mr Gaskell hinted the rules were a further threat to independence because they would mean any IFA firm was likely to be unable to offer “complex” advice, which he said would often involve a financial planner referring to experts in much the same way as a GP refers to other medical specialists.

Asked if this could lead to more moving away from independence, or more accountants choosing not to set up financial advice practices, Mr Gaskell said: “It would be premature to draw conclusions beyond that there is a problem.”

He said the body had invited the FCA to speak at a public workshop on the issue in the “public interest” on 5 June, but that until now the regulator had not yet replied and did not appear “overly receptive” to the concerns.